Part 3/8:
To understand Tom’s situation, it’s essential to unpack the rationale behind his investment choices. He references an earlier guideline of investing according to one's age, specifically the formula 110 minus your age (to determine the percentage of assets to allocate in the stock market). This approach serves as a conservative starting point for many investors.
Tom’s reliance on a defined benefit pension plan and annuities, both of which are essentially fixed-income products, could indeed lessen the need for bonds in his portfolio. Essentially, these instruments can provide the security that bonds typically offer—regular income and stability.
The Role of Pensions and Annuities
Let’s explore the function of these retirement tools in Tom's portfolio: